Choice experiment

One section of the questionnaire contains a choice experiment to quantify respondents’

relative preferences for certain credit characteristics. This section was designed as a stated choice experiment (e.g., Louviere et al. 2001), which was developed in transport

and marketing and has found increasing popularity for the purpose of environmental valuation in recent years (e.g., Bateman et al. 2002; Pearce & Özdemiroglu 2002).

Conjoint analysis, a related technique, was applied by Dufhues (2007) in Vietnam to assess the factors that impede or support the access of rural households in Northern Vietnam to formal financial systems. The use of a hypothetical choice situation allows for an ex ante assessment of demand for products that are not yet available on the market or are not yet available to a target population of consumers.

Based on information from Georgian financial institutions, six loan attributes, of which five have four levels and one has two levels⁹, were assessed. The attributes are i) loan size, ii) interest, iii) collateral, iv) instalments, v) commission, and vi) loan duration. Collateral is the attribute with two levels. The attributes interest and commission reflect the expected cost of the loan. With respect to the experimental design, an orthogonal [uncorrelated] design plan was created in SPSS (e.g., Alpizar et al. 2001; Glenk et al. 2006). A fractional factorial design (Chrzan & Orme 2000;

Hanley et al. 2006) served to select an orthogonal fraction of thirty-two out of 5⁴ and 1² possible combinations of attribute levels. For this purpose, each attribute level (except collateral, which has two levels) obtained a code number from one to four, and a block variable with four levels was created to subdivide the thirty-two choice cards into manageable smaller units of eight cards per block. As the choice cards have to have two choice possibilities, A and B, a second set of thirty-two cards had to be established. To do this, the attribute codes were first recoded in SPSS with the ‘mix &

match’ method (see Chrzan & Orme 2000) as different code numbers, and then orthocodes (Hensher et al. 2005 p. 132) were generated for all sixty-four alternatives.

The experimental design allows for the estimation of all attribute main effects and is based on percentage values for the attributes interest and commission, which represent the credit cost. Prior to the final design, correlations between the single attributes had to be excluded. This was done with Excel, and, as the calculation results showed no correlations, the design was used to create the final choice cards. From the thirty-two choice cards, eight choice sets with four cards apiece were assembled. Each respondent received four choice cards with three alternatives: two loans (A and B) and the status

9 Attribute levels for loans with group liability were taken from Constanta Foundation, and for loans with individual liability from TbilUniversalbank and United Georgian Bank (Kortenbusch &

Cervoneascii 2003 Annex E).

quo alternative (that is, neither of the loans on the cards). This makes altogether 3⁴ choices. The following table (Table 5.5.1) shows all the attribute levels for both credit systems.

Table 5.5-1: Attributes and levels of two loan types

Attribute Loan with joint liability Loan with individual liability Loan size (lari) Source: Table created by author. 1 lari = 0.44 euros (NBG 2008)

As mentioned above, each respondent received four choice cards depending on the general credit system he or she had selected. Thus, if the respondent chose loans with individual liability, he or she received four cards with attributes of two alternative individual loans and the alternative ‘neither of the loans on the choice card’. After the choice task, the results of the four choices were entered in the questionnaire.

The choice cards were divided into four categories:

1. Individual loans with attributes in percentages (interest, commission).

2. Individual loans with attributes in the Georgian currency, lari (interest, commission).

3. Loans with joint liability with attributes in percentages (interest, commission).

4. Loans with joint liability with attributes in the Georgian currency, lari (interest, commission).

The division into four categories makes it easier to explore whether choices differ between choice cards showing percentages or lari. Both card types within one loan category contain the same attribute levels, like loan size, interest, and so forth. The only difference between them is the expression of interest and commission in lari or in percent. All interviews were conducted as in-house surveys by trained local interviewers. Figure 5.5.1 provides an example of a choice card with attributes for a loan with individual liability. A respondent would receive four choice cards and had to choose between loan A, loan B, and ‘neither loan’, which implies that he or she chose four times between three possibilities. After the choice task, the interviewer noted the four choices in a table on the questionnaire. In many other studies, more than four choice cards are employed. Carlsson & Martinsson (2008) did a choice experiment in Sweden using twelve and twenty-four choice cards with two groups of respondents and found that the higher number of choices did not tire out the sampled population.

Despite these findings, a design with only four choice cards seemed more appropriate in the context of rural Georgia because, in addition to the choice experiment, respondents had to answer a high number of questions in the questionnaire.

After testing the choice cards with the focus group of six persons and with the sixty-five respondents in the pilot test, it was clear that respondents had difficulty with interest and commission expressed in percent instead of lari. A number of financial institutions in Georgia display interest and commission in figures and not in percent.

For this reason, it was easier for the sampled population to deal with figures.

Consequently, only choice cards with lari were employed in the choice experiment for the final survey.

Figure 5.5-1 Choice card for a loan with individual liability (English version)

Choice card loan with individual liability Attributes Loan with individual

liablitiy A

Loan with individual liablitiy

B

Loan size (lari) 16000 8000

Monthly interest (lari) 240 160

Collateral Real estate Movable goods

Instalments (months) 2.5 2

Commission (lari) 320 80

Loan duration (months) 12 24

Neither loan

Source: Card designed by author